6 Tax strategies before year end

With just a little over 2 months left until the end of 2010, it is looking more like we will not get an extension of the Bush era tax cuts.  The impact of not extending the current tax cuts will be a tax increase for just about everyone, but especially hard hit will be families with over $250,000 of income.

Here are six things you should look at before 12/31/2010 to plan for higher taxes in 2011.

1. Take any long term capital gains this year.  If you are lucky enough to have participated in the 2010 stockmarket rebound, you may consider cashing out some of the gain this year.  The 15% top capital gain tax is going to 20% in 2011.
2. Stop your 401K deductions this year when you hit the limit that your company will match.    Then in January go back to maxing out your contributions when the income you defer will have a greater pre-tax value.
3. If you own a business try to pull as much revenue as possible into 2010.  Get your December billings out early and encourage customers to pay quickly or even prepay on their account.  If you get a year end bonus, ask to have it deposited in your account by December 31 and be sure it is reported on your 2010 W-2.
4. On the flip side, push your business deductions to next year.  Postpone as many expenses as you can into 2011 where they will help lower next year’s taxable income.
5. Along those same lines look at your property taxes and charitable donations.  December is by far the largest month for charitable giving, you might consider pushing those donations off to January 1.  In many states, property taxes are due January 31, but taxpayers will often write and mail the check before December 31 to get a current year deduction.  This is one year that strategy may work against you.  Those itemized deductions will be more valuable to you in 2011.
6. Finally consider if a ROTH IRA conversion is right for you.  The adjusted gross income cap has been lifted and anyone can convert a traditional IRA to a ROTH.  Conversions done in 2010 have a choice of paying the tax in 2010 or spreading the income over 2011 and 2012.  You typically want to postpone paying tax as long as possible, but at the top tax bracket a $300,000 ROTH conversion will cost you $13,800 more income tax if you pay in 2011 and 2012 instead of paying it all in 2010.